We’ve all heard the saying from the Oracle: "Be fearful when others are greedy, and greedy when others are fearful." There certainly seems to be some truth to that. I’ve always been somewhat of a contrarian, and as such have seen a few cycles come and go over the last couple of decades, missing huge opportunities more than once.

Of course the instinctual reaction to the current economic environment is to compare it to something historical. The South Sea Bubble of 1720. The Panic of 1873. The Great Depression. This Fourth of July weekend, I decided to re-read Michael Lewis’ "Liars Poker," having just finished reading "Too Big to Fail" (twice). I had forgotten the rules of Liar’s Poker, the gambling game that was played by the Solomon bond traders back in the mid-1980s. As I was reading, it struck me that the inherent bluffing that went on during a game of Liar’s Poker is similar to what is going on in the broader markets (equities in particular) today. It seems to me that the so-called smart money knows that the equity markets are about to have a significant sell-off, but it also knows it has front row seats to the show. Some investors are confident that they can reach the exit before panic really sets in with the less-connected and less-informed. Now the contrarian in me would normally see this as an opportunity to plant the seeds of future growth, as everyone runs around fearful. But a few things I’ve observed recently tell me that this is probably not the case.

First of all, the commercial world has developed multiple personalities when it comes to the credit crisis. On one hand, you have large business associations saying that the decrease in lending is simply a matter of decreased demand. On the other, you have large financial institutions advertising that they are lending more than ever. And finally, you have the widespread belief that credit is still relatively frozen, particularly for small and midsize businesses (SMBs), coupled with the notion that we are living in a "new normal" era of credit availability, where access to credit will not return to pre-crisis levels anytime soon. Which one are you supposed to believe? Well if you watch the television commercials, credit is flowing just like the good old days. But if you sit at my desk every day, you realize that this simply cannot be true. At The Receivables Exchange, we speak to literally thousands of small and medium companies every week, most of them businesses in need of working capital for growth. And the story I hear from them is not one of efficient capital availability for SMBs. I hear the story of stringent covenants, personal guarantees, revolver balance minimums and prolonged underwriting processes –- often up to 90 days. Basically, a testament to the adage of "capital is available to all companies without a capital need."

All of this is troubling, because I do not understand how we can have a broad-based economic recovery without SMBs getting the working capital fuel they require to initiate and sustain growth. Traditionally we look to the public markets to give us long-run economic visibility, despite the fact that the majority of our GDP is generated by small and midsize businesses. When you look at large corporations, you see a fairly rosy picture. There is more cash on large corporate balance sheets probably than ever in the recorded history of business. Earnings forecasts are still predicting growth in various sectors. But if things are so rosy, why are so many corporations pushing out their receivable terms out from 30, 45, 60 and sometimes 90 days?

And then there is, of course, the sticky issue of unemployment, which is around 10 percent, artificially low because it doesn’t take into account the "under-employed," nor the fact that, on a trailing basis, it has been suppressed by immense census hiring, which is now coming to an end. If the economy is going to grow, someone has to explain to me where the demand is going to come from, because the unemployment figures tell a different story. What’s more, the stimulus is running out. We are running on fumes, and the well, while not dry exactly, just ain’t as deep as it used to be. So the general intuition is, let’s not push it too far, lest the golden goose stop providing.

And lastly, the baby boomers are about to be saddled with a 20 to 40% increase on their dividends and interest payments next year, no doubt a significant portion of their disposable income, and smack in the midst of their transformation from net savers to net spenders. This coming increase is being referred to as the "Tax Wall," and it could force the baby boomers to curb their spending.

So here’s what we have: tight credit for the SMB economic engine, a poor employment environment, shrinking stimulus-generated economic growth, and the promise of decreasing consumption from arguably the largest consumption engine of our economy – the baby boomers.  Normally I would look for an opportunity amidst the ongoing crisis, but I am suspending my contrarian tendencies. Sometimes when times are scary, it is smart to be scared.

Nic Perkin is co-founder and president of The Receivables Exchange, an accounts receivable financing tool. The Exchange is the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable.

“TARP, zero interest rates, trillion-dollar budget deficits, you name it, we’ve thrown anything we can at the system. That has been successful to a limited extent at stopping the bleeding, but it has not really allowed the patient to get up off the table and resume a normal life again.” –- Steve Roach, Morgan Stanley’s Asia chairman, in an article in The New York Observer.

The end of the 2nd quarter proved that the rally in credit and the stock market has grown long in the tooth. GDP estimates have started to roll over, along with the majority of economic leading indicators. The folks at the Fed are staring at a control room with a limited number of levers left to pull. Inflection points such as this are underpinned by a shift from a risky environment to one plagued by uncertainty.  Risk can be priced, while uncertainty breeds paralysis. One year ago, we made the positive shift out of uncertainty as TARP and government stimulus pulled us out of the credit crisis. Now, 12 months later, we have gained stability, but only just enough to survey the damage. The Fed’s only monetary weapon now is further quantitative easing via open market asset purchases. This is akin to more infusions of plasma, not a cure.

Loans outstanding to small businesses continue to drop as well, falling 6% in the past three quarters. The lack of new lending during a period of time when the Fed was flooding the market with liquidity suggests structural balance sheet problems that low rates will not solve. Additionally, a recent stimulus provision expired, moving the SBA guarantee down from 90% to 75%. The result was new SBA loan origination collapsing in June. Origination under the program fell to $647 million, from $1.9 billion in May. The collapse suggests that the 15-point difference in the SBA guarantee crossed the marginal level of acceptable loan-to-value (LTV) ratios that banks could feasibly offer. The drop in coverage offered by the SBA probably pushed LTVs under 50%, which is a tough number to swallow for businesses looking for credit.

The LTV issue highlights another problem with the SBA program: In the current environment, small businesses are looking for short-term working capital finance. If the business does not already own real estate that can be used as collateral, or intend to use the proceeds to buy real property, the offers are not on the table. Lines of credit for working capital are few and far between.  When the SMB space is looking for oranges, the banks are, in effect, offering sour apples. This is a major structural problem that has the Fed vexed, wondering how to solve it.

Our continued growth shows that there is a high degree of demand for flexible working capital finance. While our rates are higher than the annualized rates offered under SBA, Sellers are seeing very competitive rates compared to other traditional sources of financing, and the attractiveness of having a 24/7 liquid capital market available to provide credit makes our solution a valuable one. And, I would argue, the Exchange is the only place where SMBs can more or less rely on their cost of capital decreasing significantly over time, often over as little as four to six months.

Bill Siegel, CFA, is senior vice president and head of the Liquidity Desk at The Receivables Exchange, an accounts receivable financing tool. The Exchange is the the world's first online marketplace for real-time trading of accounts receivable. Find out how to trade accounts receivable.

The credit crunch affecting small businesses is getting the attention of major government leaders, including Federal Reserve Chairman Ben Bernanke.  Bernanke spoke at a Fed-sponsored conference this morning and said that increasing credit to small business is “crucial” to economic recovery, according to a Reuters article.

At the conference, Bernanke said that the Federal Reserve “takes very seriously” complaints from bankers that regulators are preventing them from making good loans. However, he added that lower demand, less availability of credit, and “the weaker financial position of many businesses” after the recession have kept banks from lending.  He mentioned the declining value of real estate and other potential collateral as a reason banks are holding back.

We wrote about Bernanke’s remarks at a similar conference last month.  His remarks today are another clear call for alternative forms of financing that will allow small businesses to thrive during the credit crunch. Small businesses that sell on The Receivables Exchange can leverage their high-quality receivables, and secure capital without putting traditional assets like equipment and real estate up as collateral.  In contrast to banks’ shrinking credit lines and tightening lending standards, institutional investors are flocking to The Receivables Exchange to purchase receivables, and small business Sellers are getting the capital they need to grow.

The new financial reform bill is supposed to prevent another credit crisis, but will there be unintended consequences for small business? Yes, quite a few, says an article today on Forbes.com, and many of them are bad:

• An increase in the capital gains tax will discourage investors from taking an equity stake in small businesses.
• Increased regulation will keep large banks from investing in hedge funds and private equity firms, keeping those funds out of the hands of small businesses.
• More robust consumer protection laws will reduce the revenue banks collect from fees and penalties and shrink the small business lending pie.
• An amendment to decrease debit processing fees won't affect what small businesses pay because the credit card companies' outsourced suppliers likely won't pass on rate reductions to the businesses they service.
• And finally, the new bill doesn't roll back the 1999 Graham-Leach-Blierly Act, which allowed large banks to swallow community banks, which generally have less-rigid lending standards.
  

The details of the financial regulation bill are still being ironed out, but whatever the final law looks like, it will likely affect credit markets across a broad spectrum, from individual consumer credit to small business lending. Among the new provisions in the law is a new consumer protection agency that will likely tamp down on certain mortgage and credit card practices. The law will also require large banks to hold a certain amount of capital at all times. An article today on CNNMoney.com says the looming passage of the bill has already persuaded banks large and small to restrict lending, out of fear of new regulation. The article states that lending activity will likely decrease even more when the bill is passed, and the abysmal commercial real estate market isn't likely to help matters.

All this translates to uncertainty for small business owners, who may be putting off important investments in their companies because they can't satisfy increasingly strict bank requirements -- that, or all this bad news has convinced them they can't get a loan. Small businesses will likely have an even more difficult time managing cash flow unless they diversify their sources of capital and look for innovative financial alternatives, such as receivables financing.

Tom Harnish has an article on cash flow in American Express OPEN Forum, where he imagines a machine that would glow green or red according to a small business's working capital position, and discusses steps business can take to "speed up cash coming in and slow down cash going out." Harnish writes:

Having more cash coming in is obviously good, but what's perhaps not so obvious is that money owed to you -- which is nice to have on the books -- isn't as nice to have as money in the bank. If you can find a way to start it coming in faster, it's the same as opening the spigot.

Sounds familiar. Harnish goes on to recommend some strategies for improving cash flow:

How fast cash comes in can be improved by reducing the trade terms extended to customers, billing promptly, or requiring progress payments and deposits, reducing and preventing bad debts, making deposits quicker, and even raising new money.

Some of these are good practice for any business, namely billing and depositing money promptly, but some carry consequences that can actually hurt a small business. Cash flow is vital to growth, but where would a business be without its customers? Reducing extended payment terms or requiring progress payments can jeopardize valuable customer relationships. Furthermore, raising new money in the current credit climate is difficult and can come at a high cost. Are these really the only cash flow solutions available to small businesses?

Well, no. There's The Receivables Exchange. By allowing small businesses to sell receivables in a competitive marketplace, the Exchange gives them access to a flexible, affordable source of capital, and allows them to preserve their customer relationships. It's an ideal solution for growing businesses who want to increase their cash flow.

Emily Maltby of the Wall Street Journal has a great article about the credit crunch, its various causes, and its effect on small business financing. It's a very good summary of what's happened to our economy in the past two and a half years with respect to tightening credit standards, and it asks some provocative questions: Are banks to blame for the precipitous drop in lending to small businesses, or are fewer small businesses even applying for loans for fear of getting turned down? Is the government sending mixed messages to banks, urging them to make prudent loans, but also to increase lending to small businesses?

Whatever the answers to these questions, the article makes clear that the credit crunch has been especially challenging to small businesses. It offers the example of Julio Valencia, who's seeking a $500,000 credit line for his growing aircraft maintenance business, but has been turned down by four different banks in the past eight months. Even though Mr. Valencia's business is sound and poised for growth, he cannot meet banks' increasingly stringent requirements, so he's unable to get the capital he needs to grow. This growth can mean anything from buying new equipment or hiring employees, and Mr. Valencia's business is one of thousands without the capital needed to expand. The ripple effect on the larger economy is easy to imagine. As the article states, until small businesses get the financing they need, "the promise of full recovery may continue to be out of reach."

Thousands of small business owners across the nation are experiencing the same challenges as Mr. Valencia. They simply don't have the collateral that will satisfy banks' tight lending standards, and they cannot grow without access to credit. Their predicament underscores the need for alternative financial sources. The Receivables Exchange allows them to leverage their invoices -- essentially the credit ratings of their customers -- to procure funding flexibly and affordably.

The Brookings Institution put out a report this month examining the barriers to success for U.S. small businesses, and proposing policies that would spur growth. The report is called "The Future of Small Business Entrepreneurship: Jobs Generator for the U.S. Economy," and it derives from recommendations made at a Brookings Institution conference earlier this year that included "academic experts, successful private-sector entrepreneurs, and government policymakers." The report is pretty extensive, but there is a lot in here that's relevant to small business.

With respect to small business financing, the report states what we already know, that businesses are having a difficult time obtaining funding from banks, venture capital firms and other traditional means. It encourages policymakers to "improve access to public and private capital" through the extension of SBA loan guarantee programs and incentives for venture capital firms to broaden their investments to underserved geographic areas and industries.

While the report does not specifically mention working capital management solutions like The Receivables Exchange, it does make another important recommendation that will help small businesses find alternative sources of financing: to strengthen government counseling programs for small businesses. As the report states:

"Entrepreneurs need an array of information and advice about how to tackle the problems that arise at different stages in business development. The SBA reports that companies that have taken advantage of their long-term counseling programs, for example, have higher growth than companies that have not."

This is an important point. We talk a lot about the importance of alternative sources of capital for small business growth, but perhaps not enough about simply giving advice to businesses, even to help them with the most basic challenges. Innovations like The Receivables Exchange can help growing small businesses improve their cash flow position, but counseling is important to make sure businesses know the tools available to them.

Most companies have more than 60% of their working capital tied up in outstanding invoices. Especially in these times, companies must wait on average more than 55 days for customers to pay those receivables. Smart companies are using the Exchange to quickly and easily sell their receivables to the highest bidder - on terms that make sense for their business - to gain access to a more affordable source of capital.

Watch the segment below to hear more about the company and the small business financing alternative it provides: